No Benefit To Bailee Provision

What Does No Benefit To Bailee Provision Mean?

The “no benefit to bailee” clause is a provision or condition commonly found in inland marine insurance policies. It is also sometimes included in other types of policies, such as car insurance.

This provision is designed to prevent a bailee from claiming any portion of the insurance proceeds if property under their control is damaged, lost, or stolen.

Insuranceopedia Explains No Benefit To Bailee Provision

The “no benefit to bailee” provision ensures that insurance compensation is directed to the victim of the loss rather than to the bailee.

For example, imagine you are moving from New York to California. Since you plan to fly, you hire a company to transport your car. If the car is stolen during transit, the no benefit to bailee provision ensures that the insurance proceeds go to you, not the company you hired to move the car (the bailee).

Similarly, if you leave your car at a garage for repairs and the garage burns down while your car is there, the insurance payment would be made to you, not the mechanic (acting as the bailee in this scenario).

Legal Precedent

The case of Travelers Indemnity Co. v. Auto Driveaway Co. (1979) established a legal precedent for this concept.

In this case, a car being transported by Auto Driveaway from one state to another was stolen by the company’s driver and never recovered. The car owner, Kraemer, had auto insurance through Travelers, which included both a no benefit to bailee provision and a subrogation clause allowing the insurer to sue Auto Driveaway after compensating Kraemer for the loss.

However, the agreement between Kraemer and Auto Driveaway stipulated that Auto Driveaway could benefit from any insurance policy held by Kraemer. This arrangement effectively shifted the financial burden to the insurer, absolving Auto Driveaway of liability.

The Wisconsin Court of Appeals ruled that Auto Driveaway was responsible for the loss. Consequently, Travelers was allowed to recover from Auto Driveaway the amount it had paid to Kraemer.